INCOME TAX ACT, 1961

Section 271(1)(c)

Penalty under section 271(1)(c) - Denying claim of exemption under section 10(23C)(iiiad) - Non recording of satisfaction by AO -

Assessee claimed exemption under section 10(23C) (iiiad). AO stated in the assessment order that assessee did not furnish any documentary evidence in support of its claim of exemption under section 10(23C)(iiiad), thereafter, a show cause notice was issued to assessee as to why the gross receipt should not be taxed as business receipt however, there was no compliance on part of assessee. AO accordingly held that the claim of exemption under section 10(23C) remained unproved and the gross receipts was treated as business receipt. Therefore AO imposed penalty under section 271(1)(c). Held: On perusal of relevant part of assessment order, wherein the claim of exemption of the assessee under section 10(23C)(iiiad) was denied and surplus of receipts over expenditure was brought to tax, again, there was no satisfaction which was recorded by AO. It is a settled legal proposition that satisfaction of the concerned AO to the effect that the assessee has either concealed the particulars of income or furnished inaccurate particulars of income is the condition precedent for levy of penalty and such satisfaction must be arrived at in the course of the proceedings under this Act. Therefore, in absence of any such satisfaction so recorded by AO and even in absence of any direction to initiate the penalty proceedings, the very initiation of penalty could not be sustained in the eyes of law.

REFERRED : DM Manasvi v. CIT, Gujarat II (1972) 086 ITR 0557 (SC) : 1972 TaxPub(DT) 0432 (SC) The CIT & Dy. CIT v. M/s. MWP Ltd. (ITA No. 332/2007) : 2014 TaxPub(DT) 0506 (Karn-HC) National Textiles v. CIT (2001) 249 ITR 125 (Guj) : 2001 TaxPub(DT) 0677 (Guj-HC) CIT v. Mohinder Lal (1987) 168 ITR 101 (P&H) : 1987 TaxPub(DT) 0721 (P&H-HC)

FAVOUR : In assessee's favour

A.Y. :

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